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Tuesday, March 29, 2011

Reports of pleading's demise may have been exaggerated

The Federal Judicial Center today released a study of the use and granting of 12(b)(6) motions under Twiqbal, comparing the years 2006 (the year before Twombly) and 2010 (the year after Iqbal). The Executive Summary put forth the following:

• There was a general increase from 2006 to 2010 in the rate of filing of motions to dismiss for failure to state a claim (see infra section III.A).

• In general, there was no increase in the rate of grants of motions to dismiss without leave to amend. There was, in particular, no increase in the rate of grants of motions to dismiss without leave to amend in civil rights cases and employment discrimination cases (see infra section III.B.1).

• Only in cases challenging mortgage loans on both federal and state law grounds did we find an increase in the rate of grants of motions to dismiss without leave to amend. Many of these cases were removed from state to federal court. This category of cases tripled in number during the relevant period in response to events in the housing market (see infra section III.B.1). There is no reason to believe that the rate of dismissals without leave to amend would have been lower in 2006 had such cases existed then.

• There was no increase from 2006 to 2010 in the rate at which a grant of a motion to dismiss terminated the case (see infra section III.B.1).

The increase in overall 12(b)(6) activity might reflect some effects of Twiqbal. Defendants now seem to have a new weapon to at least try to wield agains a complaint, even if unsuccessfully. That is particularly true of § 1983 actions, which did show a statistically significant increase in 12(b)(6) activity even though the overall category of "Civil Rights" did not. That the motions are not being granted at meaningfully greater rates does not mean the decisions are not having an effect. One explanation for the lack of increased success in those motions might be that Twiqbal is doing its work on the drafting process--plaintiffs are putting more information into their complaints out of an excess of Twiqbal-imposed caution. In addition, there was a 7% increase in overall case filings, suggesting that perhaps Twiqbal is not having the over-deterrent effect many feared.

It is unsurprising that the study found an increase in 12(b)(6) motions granted with leave to amend. Courts dismiss with leave in cases of factual insufficiency, where the plaintiff has not pled enough facts or with enough detail. The whole point of Twiqbal was that plaintiffs must plead more facts and factual detail (even if it is not clear how much more), enough to convince the court the claim is plausible. Follow-up studies will explore what happens after these dismissals with leave to amend: Does the plaintiff replead? Does the defendant move to dismiss the amended complaint? We might expect an indirect effect here--Twiqbal leads to more dismissals with leave to amend, followed by a subsequent 12(b)(6) challenging the amended complaint eventually being granted, this time without leave to amend on the ground that the plaintiff already had multiple opportunities to amend and still had not made factually sufficient allegations. In fact, the study did find that more 12(b)(6) motions in 2010 were challenging amended complaints--this suggests that more amended complaints are being filed, perhaps in response to dismissals with leave to amend, perhaps in general response by plaintiffs to Twiqbal.

On the other hand, I am not surprised that there has been no increase in 12(b)(6) motions granted without leave to amend, at least not in direct response to Twiqbal. Legal insufficiency is about substantive legal standards and whether legal claims of right do not exist. Neither Twombly nor Iqbal changed the applicable substantive law in their respective areas (except perhaps for the law of supervisory liability in § 1983/Bivens actions), the only thing that would directly cause an increase in dismissals without leave. The increase in such dismissals occurred only on federal and state claims arising out of mortgages and other financial instruments. These cases were relatively unknown in 2006 and increased dramatically between 2006 and 2010 for obvious reasons. In any event, these dismissals result not from Twiqbal, but from the state of laws such as the Truth in Lending Act and the Real Estate Settlement Procedures Act, which did not reach much of the conduct about which foreclosed-on homeowners were complaining. Many of these claims were unique and legally creative or innovative--precisely the kinds of cases in which courts may find the claim to be legally non-existent and thus the pleading legally insufficient.

All in all, the report continues to suggest that we still do not know much about Twiqbal's real effects. There is certainly more 12(b)(6) activity, but plaintiffs are not routinely being tossed out of court at the early stages, at least not in significantly greater numbers than under pre-Twiqbal pleading rules (whatever they really were). Maybe some of the Twiqbal scholarship suggesting this is much ado about nothing is turning out to be correct. It is going to take a while to find out for sure.

Comments

Wait a second. I haven't read the report, but the relevant number is how many cases are being dismissed WITH leave to amend. Your explanation says that the number has gone up. If it has, then Twiqbal is having an effect, no?

Also, are lawyers less likely to bring cases that can only barely be pled for fear that they will be tossed early on?

Posted by: Hillel Y. Levin | Mar 29, 2011 11:47:37 AM

If I'm reading and thinking about this right, the fact that there has been an increase in the rate of MTDs filed, plus no corresponding decrease in the rate at which they lead to dismissals with prejudice, means that it has gotten easier to get a dismissal with prejudice. Right? If the rate of filing MTDs has gone from 30% to 40%, and a constant 25% of those lead to dismissal with prejudice, that means that out of the total case load the rate of dismissal with prejudice has gone from 7.5% to 10%.

Professor Levin: The increase in courts' granting motions to dismiss with leave to amend suggest that Twombly and Iqbal are having an effect. But this is not the effect that most academic commentators predicted. I.e., the courthouse doors have not necessarily been slammed shut on plaintiffs.

(I say "not necessarily" because it is still possible, as Prof. Wasserman suggests, that Twombly and Iqbal "leads to more dismissals with leave to amend, followed by a subsequent 12(b)(6) challenging the amended complaint eventually being granted, this time without leave to amend on the ground that the plaintiff already had multiple opportunities to amend and still had not made factually sufficient allegations.")

But many claimed that Twombly and Iqbal have radically changed pleading practice and are unfair to plaintiffs. If these claims were true, I would have expected that the study would have shown that Twombly and Iqbal have caused an increase in the amount of dismissals without leave to replead—i.e., the courthouse doors were actually being shut.

Posted by: annon | Mar 29, 2011 12:56:58 PM

Bruce:

Yes, although that does not seem to be attributable to Twiqbal. The authors of the study attribute it to the dramatic increase in mortgage/foreclosure claims, which are failing for legal insufficiency at pretty high rates.

Hillel:

I agree with Anon, who said what I was gunning for, just better--the effect of Twiqbal may be just making plaintiffs work more at repleading several times, but not actually knocking them out of court. Or plaintiffs are including more information and thus *surviving* more 12(b)(6) motions because they have found a way to comply with the higher standard.

Posted by: Howard Wasserman | Mar 29, 2011 1:40:27 PM

The study is interesting, but far from dispositive. The question that remains unanswered is what is happening to the cases in which leave to amend has been granted. If plaintiffs are not able to amend to satisfy Iqbal, then the disposition of those cases will essentially be the same as a dismissal with prejudice. It makes sense, of course, that in the immediate aftermath of Iqbal, courts are granting leave to amend, but that does not mean it will actually result in successful amendment.

There also are some strange methodological and statistical assumptions going on in the study (my criticisms of which I already have communicated to the authors). First, rather than report actual p-values for the statistical analysis of the comparisons made in the study, the report simply uses an arbitrary cut off of p<0.05 for statistical significance. This kind of analysis is less than useful, and I think most empiricists would agree that it is far better to just report the actual result of the significance test, so that readers can decide what level of "statistical significance" they find tolerable. So, if one uses 0.10 as the cut-off for statistical significance, there was a statistically significant increase in the dismissal of civil rights claims and a statistically significant increase in the rate at which all claims in a plaintiff's employment discrimination claims were disposed of. In any event, I am not even sure significance testing is very useful here -- but if we think it is, we should look to the actual results of the tests, not an arbitrary cut-off.

Second, I also have some concerns regarding the study’s methodology. For instance, the study excluded cases in which qualified immunity was raised by the defendant. Although it is true that qualified immunity is an affirmative defense, many circuits treat it as a matter of pleading, and even Iqbal seemed to unnecessarily conflate the two inquiries at times. At the very least, that aspect of qualified immunity which asks whether the plaintiff has established a violation of the constitution overlaps significantly with the question of whether the plaintiff has failed to state a claim. Thus, I do not understand why one would exclude those cases from the methodology. It also appears (or at least there is no statement to the contrary) that the study has included motions to dismiss in which statute of limitations was raised as a defense. These are usually raised through 12(b)(6) motions, and I see nothing in the study to indicate that they were excluded from the cohort. Indeed, footnote 35 seems to suggest that they were included. Yet statute of limitations, much like qualified immunity, is an affirmative defense and unlike immunity really has nothing to do with pleading sufficiency. Thus, I would expect that there is a stronger argument to exclude cases in which statute of limitations was raised than to exclude cases involving qualified immunity.

Finally, I am not quite sure that I understand the justification for excluding prisoner cases and pro se cases from the cohort studied. I can imagine analyzing them separately, because of their distinctive characteristics, but excluding them entirely seems incomplete, if what we are looking for is how courts are treating civil cases as a whole.

Now just one second. No one ever thought that judges would grant more mtds with prejudice. Th prudent judge grants it without prejudice, but the courthouse door may very well be slammed shut on the plaintiff if she can't plead more facts.

Further, after twiqbal one would predict that plaintiffs would initially plead more facts if they could. If that's the case, and the rate of dismissals is the same, then what does that tell us?

Mostly I think you are right that what matters is what happens after these claims are dismissed without prejudice. The study has nothing to say about that yet. So why would we conclude that what we thought might happen is not happening? This study seems totally consistent with what many scholars predicted.

Posted by: Hillel Levin | Mar 29, 2011 7:47:39 PM

To answer the question in the second paragraph: Maybe it tells us that courts pre-Twiqbal were applying something more than a pure version of *Conley* and the effect of Twiqbal is simply to endorse what the courts already had been doing, rather than working any change in the standard on the ground.

The authors recognize that they have to go back and figure out what happens after the initial dismissal without prejudice and the authors state that they are just undertaking that study.

If plaintiffs are successfully adapting to Twiqbal (or if courts are just doing what they had been doing all along), then Twiqbal is not having any effect in the sense of forcing larger numbers of plaintiffs out of discovery and out of court. I think the point is we just don't know yet.

Posted by: Howard Wasserman | Mar 29, 2011 7:55:02 PM

I guess I think we know a few things. We know that defendants are experiencing more success in MTDs post-Iqbal than they were pre-Iqbal, even though I think we can assume, as Hillel notes, that in counseled cases (which are the only cases this report studies) plaintiffs are likely trying their best to plead more facts than they were pre-Iqbal. I just don't buy that the broad reading of Twiqbal that some courts have adopted is comparable to some of the heightened pleading tendencies that lower courts flirted with pre-Twombly. Perhaps the exception is the Eleventh Circuit, which has almost comically said that now, post-Iqbal, it will no longer apply heightened pleading to civil rights claims. But otherwise, my reading of the cases -- and I have read far too many for my taste -- suggests that Twiqbal read broadly has posed a significant hurdle to plaintiffs who, pre-Twombly, would not have had difficulty getting to discovery. These are reported cases, of course, and as such are unrepresentative of the dismissal rate, but they are the only indications we have of how lower courts are developing doctrine post-Iqbal.

We also know that, even if all that Twiqbal is doing is forcing plaintiffs to go through an additional amendment step, it is imposing costs on courts and the parties for little payoff. I suppose the last proposition -- the payoff -- is open to dispute, but at least I have yet to be convinced that there is a payoff.

Finally, we know that the FJC is almost certainly not going to study a group of plaintiffs that we might think will be particularly disadvantaged by a broad reading of Twiqbal -- pro se plaintiffs and prisoners. I am not going to pretend that this is an insignificant omission.

I think it would be great if it turns out that Twiqbal is having a minimal or undetectable effect on the disposition of civil cases. And I hope that the follow-up of the cases in which leave to amend was granted shows this. But I am not sure that even after that follow-up, we will have a complete picture of the effects of Twiqbal.

I'm interested in this idea the courthouse door being slammed in a case where a judge has granted a motion to dismiss with leave to replead. The court will have written an opinion explaining to the plaintiff (1)which element of the claim for relief the plaintiff has failed to adequately plead; and (2) why that element has not been plausibly pleaded.

Then the judge (3) gives the plaintiff the opportunity to bring forward more facts to adequately allege the element of the claim for relief--essentially an invitation to the plaintiff to explain to the judge why he or she believes that it is plausible that the element of the claim for relief actually occurred. And then (4) the plaintiff tries to bring forward those facts but (5) the judge still decides that it is not good enough.

I'd be interested in seeing what these cases look like. (I'm guessing is that this wouldn't look like a door slamming but would instead look like the plaintiff hasn't "show[n] that [he or she] is entitled to relief.")

Posted by: annon | Mar 29, 2011 11:09:33 PM

The problem is if the plaintiff's failure to plead enough facts is a product of the plaintiff's inability to obtain those facts without discovery. That, to me, has always been the threat posed by Twiqbal--that it demands something the plaintiff cannot do at the pleading stage. And that is true for the initial complaint as well as for subsequent amendments.

Posted by: Howard Wasserman | Mar 29, 2011 11:25:19 PM

Prof. Wasserman:

I understand that that's the threat of Twombly and Iqbal. But a plaintiff will always have a reason why she believes that she is going to find those facts through discovery.

Twombly and Iqbal require a plaintiff to reveal to the judge why she has that belief. If that belief is reasonable, then the complaint is plausible. The danger certainly exists that a judge will disagree with the plaintiff and find the plaintiff's believe unreasonable.

The study shows, however, that judges are not slamming the door but instead are giving plaintiffs the opportunity to demonstrate why that belief is reasonable. My instinct is that a dismissal that occurs after all 5 steps that I outlined above will not live up to the rhetoric that followed Twombly and Iqbal.

Posted by: annon | Mar 30, 2011 1:18:03 PM

Annon: before twiqbal, at least nominally and doctrinally, a complaint did not have to be "plausible." Thus there was less that the plaintiff had to plead. Now a plaintiff has to plead more. If she can't, then whether or not the judge attaches the words "with prejudice" or "without prejudice" to her ruling, the door that was once open is now closed.

Posted by: Hillel Levin | Mar 30, 2011 2:17:15 PM

My reactions:

If the FJC believes that the statistically significant increase in dismissal rates overall was driven solely by financial-instrument cases, I wonder why it didn't report the overall dismissal rate with the financial-instrument cases removed. Perhaps I'm wrong here, but by my calculations, removing the financial-instrument cases leaves 683 motions and 453 grants pre-Twombly (66%) and 986 motions and 700 grants post-Iqbal (71%), with p<0.05. So, I think the overall dismissal rate is still statistically significant even at the 95% confidence interval.

The FJC broke down rates by type of case, but its disaggregated numbers leave the bins so small that statistical insignificance at p<0.05 is unsurprising.

I wonder if the FJC's limitation on motions filed within 90 days makes a difference. The resulting figures suggest that the FJC captured only a small subset of the motions filed because prior studies had found filing rates of motions at around 13% rather than at the 4-6% this study found.

I couldn't discern whether the researchers read the orders to determine whether they were actually based on 12(b)(6). I think the search terms would have caught motions made on multiple grounds, and, if so, the resulting orders might have only addressed a non-12(b)(6) issue (like a 12(b)(1) issue, or even a MSJ). But maybe I'm misunderstanding how the search, capture, and review process worked.

Finally, if dismissal rates are not decreasing, yet case filings and MTD practices are increasing, I wonder (along with Howard and Alex) what good Twiqbal actually is doing.

Posted by: Scott Dodson | Mar 30, 2011 2:40:05 PM

On that last sentence, I meant: "Finally, if dismissal rates are not increasing, yet case filings and MTD practices are increasing, I wonder (along with Howard and Alex) what good Twiqbal actually is doing."

Posted by: Scott Dodson | Mar 30, 2011 2:43:07 PM

In my opinion, the label is important. With one label—with prejudice—the doors to the courthouse are slammed shut and the plaintiff is out on the street. With the other label—without prejudice—the door to discovery remains closed but the plaintiff is not out on the street and has been invited by the judge to include in her amended complaint the reason why she believes that it is likely that discovery will reveal the facts she is missing.

(And the door to discovery doesn't even automatically remain closed. It's certainly possible that a prudent district judge will allow the plaintiff discovery before another round of motions to dismiss and can even, if I'm remembering correctly, decline to decide the motion to dismiss.)

Obviously Twombly and Iqbal represent a change. But the change is not as unfair or unjust to plaintiffs as it has been characterized. Plaintiffs have certainly been adversely affected with the burdens of more briefing and more fact investigation before filing. But this isn't the same as stripping plaintiffs as a class of their access to justice.

Posted by: annon | Mar 30, 2011 2:47:57 PM

"these dismissals result not from Twiqbal, but from the state of laws such as the Truth in Lending Act and the Real Estate Settlement Procedures Act, which did not reach much of the conduct about which foreclosed-on homeowners were complaining."

Not so clear. Twiqbal really impacts cases that depend on insider knowledge, which includes lots of claims related to ownership of a note or robosigning.

Also, it is interesting that claimed defects in pleading under 12(b)(6) are almost 2.5 times as common in removed cases, where the Complaint was drafted with Twiqbal, which doesn't apply in state court, in mind, a sort of bait and switch tactic.